Saffron rally: What you must know before giving in to this euphoria

NEW DELHI: Benchmark equity indices got off to a strong start on Monday, rallying over 2 per cent after exit poll projected a clear majority for the BJP-led NDA in the general elections. History suggests exit polls have often been wide off the mark, but analysts say the buffer between projected seats and the magical halfway mark of 272 is heartening.
Here are the key takeaways:
BJP can outdo poll estimates: On an average, exit polls predict 304 seats for the NDA, down from 336 seats in 2014, but comfortably above the simple majority mark of 272. Among the two exit polls that have historically been more accurate, Today’s Chanakya predicts 350 seats for the NDA, Nomura India noted. “While exit polls have been right in the past about the winner, they have underestimated the seat count for the victors by 60-70 seats. So, there is a possibility that these projections may be understating the final seats won,” Nomura said.
INC shrinking, BJP growing: Motilal Oswal Securities said the BJP traditionally dominates in North, West and Central India. But now it is gaining foothold down East. “This will be the first instance in the history of Independent India when the Congress would have failed to cross triple-digit mark in seat count for two elections in a row in a national election,” the brokerage noted.
Hindi heartland still BJP bastion: While pre-election projections had anticipated a drop in BJP’s seat count in the Hindi Heartland in Central, Northern and Western states like Gujarat, Rajasthan, UP, MP, Bihar, Haryana, Chhattisgarh, Delhi and Maharashtra, the latest poll suggests otherwise. “Post the 2018 state elections, which were won by the Congress in Rajasthan, MP and Chhattisgarh, the Congress was expected to do well in these states and wrest seats from BJP. However, if exit polls predictions are correct, it seems the BJP has managed to retain its dominant position in these states,” Motilal Oswal Securities said.
Eyes on next level reforms: Kotak Institutional Equities said the next government would have to implement certain reforms to further improve the “ease of doing business” in India. “India still ranks quite low on important parameters. The central government may want to focus on reforms in factors of production including labour and land and the role of government in business including privatization of PSUs and review of extant ownership and pricing policies to encourage greater FDI and private investment in the critical infrastructure sector,” it said. The brokerage, however, feels that these reforms may not be easy to implement politically.
India may relatively fare well on economic front: Swaminathan Aiyar, Consulting Editor, ETNow, said he would not be surprised if global growth and domestic economic growth is worse in NDA-II than it was during NDA-1 due to global factors. “The relative performance of the Indian economy may still be better than others. Even with the slowdown India may continue to be the fastest growing major economy. As they said, in the land of the blind, the one-eyed man is king.”
Sanity to prevail in markets, volatility to ease: After initial euphoria, sanity will prevail, said Umesh Mehta, Head of Research, Samco Securities, who feels Monday’s gap-up start may not promise a strong close. For May 23, Mehta noted that 30 countries have gone to poll in last three years, at the most the poll days have seen 2.9 per cent move, minimum just 0.1 per cent. “Nifty at the most may trade in a 300-point range on the upside. The index should oscillate between 11,700 and 10,800 till the Union Budget. For traders, any rise could be an opportunity to sell. Global factors will overrule once the coming week is over. It will now be Union budget which will hold the key for the market,” Mehta said. On Monday, VIX eased 18 per cent to 22.92.
Hold your horses: Historically exit polls have been notorious for getting projections wide off the mark, and one must take them with a pinch of salt, analysts warned. In 2004, exit polls had wrongly forecast a repeat victory for the BJP-led NDA coalition, while in 2009, they meaningfully underestimated the Congress-led UPA’s seat share, foreign brokerage UBS pointed out in a note. “In 2014, while exit polls correctly predicted a victory for the BJP-led NDA, they significantly underestimated the margin of victory,” UBS said.